MANILA, PHILIPPINES – The Asian Development Bank (ADB) has approved $700 million in loans to support the Indian government’s efforts to accelerate investment in the infrastructure that the country urgently needs to ensure strong economic growth.

“Poor infrastructure is one of the biggest drags on growth and development in India and there is a large investment funding gap of about $113 billion during the 12th Five-Year Plan for 2012-2017,” said Cheolsu Kim, Lead Finance Specialist in ADB’s South Asia Department. “This assistance to India’s Infrastructure Finance Company Ltd (IIFCL) will allow it to lead the market evolution for infrastructure financing and will spur greater involvement from the private sector.”

The Government of India estimates that $1 trillion in infrastructure investment is needed to achieve economic growth of 8.4% under its current five-year development plan, and expects nearly half of that to be financed by the private sector. However, banks which have been the key source of infrastructure finance, are increasingly unable to provide funds as they are fast approaching exposure limits to key infrastructure companies.

ADB’s funds – provided through two loans under a multitranche financing facility – will be used to provide direct loans – potentially including subordinated loans - for project developers and to replace bank loans, freeing up banks to invest in other greenfield projects and ease their sector and borrower exposure limits.

Currently, 31 road, railway, airport, urban infrastructure and energy projects, including renewable energy, are in the pipeline to receive support from ADB.

Established in 2006, IIFCL is wholly owned by the government and its borrowing program is fully backed by a government guarantee. At the end of March 2013, it had a pipeline of 349 infrastructure projects, with a total project cost of around $90 billion, of which IIFCL financing is expected to be around $10 billion through foreign and local market borrowing. Its pipeline is expected to grow by an average of 40-50 projects per year between 2014 and 2019.

The latest financing for IIFCL comes on top of a previous $500 million loan facility approved in 2007, which helped fund 30 public-private partnerships, including the Delhi and Mumbai international airports, and a further $700 million approved in 2009, which is still being disbursed. Every $1 of ADB funds mobilized an additional $12 from other sources.